WHISPER IN A TEMPEST: Reflections on the CAG Report and Allocation of Captive Coal Blocks

D V Kapur

The Report of the Comptroller and Auditor General of India (CAG) on "Allocation of Captive Coal Blocks and Augmentation of Coal Production" for the year ending March 2012 has, among other things,

The Report of the Comptroller and Auditor General of India (CAG) on “Allocation of Captive Coal Blocks and Augmentation of Coal Production” for the year ending March 2012 has, among other things, observed that the delay in the introduction of competitive bidding for coal blocks to captive users of coal in the power, cement and steel sectors had rendered the existing process of allocating coal blocks beneficial to private coal block allottees. Based on average cost of production and average sale price of Coal India from opencast mines in the year 2010-11, the CAG has estimated that likely gains to the tune of Rs 1.86 lakh crores could accrue over 25 years to private sector allottees of 57 blocks during May 2005 and June 2009 and that a part of that could have accrued to the exchequer, if allocation was done through competitive bidding. The disclosure of CAG Report in Parliament and in the media has, however, crowded out legitimate concerns raised over the growing gap between the production and consumption of coal and instead focused exclusively on the above mentioned notional figure of Rs 1.86 lakh crores. There are a number of commendable recommendations in the report by the CAG that are worthy of serious consideration. These are: 1. The Ministry of Coal must make efforts to enhance the drilling capacity of Central Mine Planning and Design Institute Limited (CMPDIL) to at least 15 lakh meters per annum. 2. Evolve a system of giving 'incentives' to encourage production performance and “disincentives” to discourage non/ poor performances such as encashment of bank guarantees of non-serious players. 3. Constitute an empowered group along the lines of Foreign Investment Promotion Board (FIPB) as a single window mechanism with representatives from the Central Government and the State Governments to grant the necessary clearances. 4. Expedite setting up of coal washeries as washing capacity of coal is inadequate in CIL in view of the fact that Indian coal contains higher percentage of ash and washing of coal is of utmost importance. The intense debate in the country, however, reflects either a bias or lack of understanding of many important related issues such as demand and supply of coal and the institutional mechanisms for transparent and fair allocation of blocks exclusively to those who can or will consume the coal for their own project. There is certainly need for a very sound and transparent policy but what is also required is a study of the implications of alternative policies keeping in view balance between gain to exchequer and price of end products of use by the common man like power, cement and steel.